Carolina Journal Weekly Report

February 18, 2002

In this issue

Feature 1 - GTP Studies Miss Deadline

Ahead of the Curve

Feature 2 - Code Blue for Medicaid

Capital Quotes

Feature 3 - Novak Reviews Bush

Coming Up

On the Cutting Edge

GTP Studies Miss Deadline
Termination of state involvement in project

Global TransPark boosters were scheduled to get a pair of special valentines Friday. Last September, through special provisions in the budget bill, the General Assembly ordered the preparation of two plans for terminating state involvement in the project.

The due date has passed and the special provisions remain works in progress.

The Department of Transportation’s Aviation Division was ordered to “study the transfer of the Global TransPark airport fixed assets and operations from the Global TransPark Authority to another appropriate entity,” presumably a revived Kinston-Lenoir County Airport Authority.
The State Board of Community Colleges was ordered to “study the transfer of the Education and Training Center from the Global TransPark Authority to an appropriate public educational entity,” such as Lenoir Community College.

Both studies were to be reported to the Joint Legislative Transportation Oversight Committee and to the chairmen of the Senate and House of Representatives Appropriations Committees by Feb. 15.

Sen. Wib Gulley, D-Durham, was one of 11 legislators who requested the special provisions. He is also cochairman of the Transportation Oversight Committee. “We usually pick a due date that seems reasonable, but this is not the first time that a report has not been delivered by the due date,” Gulley said. Gulley's committee has scheduled the reports to be discussed at the April 2 meeting and hopes they will be complete by then.

CJ Weekly Report discovered that the Aviation Division report is probably finished, but has not been reviewed by DOT Secretary Lyndo Tippett or by Gov. Mike Easley.

Department of Community Colleges spokeswoman Audrey Bailey said the State Board of Community Colleges decided to hire a consultant to do its report. The board awarded a $13,000 contract to JPC Associates, Inc. The principal employee of JPC Associates is J. Parker Chesson, Jr., a former executive vice president of the community college system. Chesson retired from state government as chairman of the Employment Security Commission on Oct. 31, 2000 even though he registered his consulting business with the Secretary of State's office Aug. 31, 2000.

Bailey and DOT officials blamed the missed deadlines on the long legislative session, even though the special provisions requiring the studies were included in the Senate's original budget released last May.

CJ Weekly Report has determined that there are apparently no penalties for ignoring the deadlines.

Ahead of the Curve

Now that Gov. Mike Easley has renewed his lobbying efforts to get the General Assembly to pass a state lottery, other political leadership voices are speaking against such a measure. Two weeks ago the High Point Enterprise reported Treasurer Richard Moore’s remarks against establishing a state lottery, in a speech to the Thomasville Area Chamber of Commerce. Last week State Board of Education Chairman Phil Kirk spoke against Easley’s proposal. The Laurinburg Exchange reported that Kirk, nearing the end of his tour of all 117 of North Carolina’s school districts, said in Scotland County that he believed if a lottery referendum was on the ballot, it would pass. “I am strongly opposed to the lottery,” Kirk told The Exchange. “We would never pass another local school bond…you don’t get a lot of lottery money. Over $6 billion is spent on K-12 in this state. With a lottery, the profit is only $250 million.”

Rep. Joe Tolson, D-Edgecombe, wants the state to raise annual vehicle registration fees by $1 for three years and $2 for the following seven years to encourage consumers to purchase gasoline-electric hybrid automobiles. Such vehicles cost more than comparably sized gasoline-powered cars, so Tolson’s proposed bill would offer a state-paid rebate of $2,500 on Toyota’s version of the hybrid, for example. The fee increase would be expected to raise up to $17 million per year. Reported by The News & Observer of Raleigh.

Code Blue for Medicaid
Stimulus failure likely means no help for N.C.

Gov. Mike Easley’s $1.17 billion in cuts and set-asides covered it anyway, but the widely reported budget deficit of $900 million facing North Carolina actually exceeds $1 billion, thanks to Medicaid. A senior state budget official has placed the likely shortfall closer to $950 million.

At his press conference Feb. 5 Easley neglected to include the $108 million expected shortfall in Medicaid in his announced $900-plus million figure. He told reporters he hoped the federal government would provide relief for the shared program, as part of a long-debated economic stimulus package. A majority of the states are asking the federal government to pay for a greater share of Medicaid because of larger-than-expected claims this year.

“We think there’s a chance that (stimulus) money will be approved,” said Bonnie Cramer, state budget administrator for human services and public safety. North Carolina has a $32 million reserve in its Medicaid fund, which would reduce the amount of the potential shortfall to $76 million.

According to sources in Washington, passage of the stimulus measure has no better than a 50-50 chance. The bill, already passed by the U.S. House, fell victim to partisan disagreement in the Senate and was deemed dead last week.

Senate Majority Leader Tom Daschle, D-S.D., pulled the bill because it couldn’t gain 60 votes, although a majority was likely to pass it.

U.S. Rep. Richard Burr, who represents the 5th district of North Carolina, said Daschle’s move was “unprecedented.” He said the Senate probably would have passed the measure with 53 or 54 votes in favor.

“It was political and not necessarily because of policy differences,” Burr said. He said he thought Daschle was positioning Democrats for the November 2002 election.

The stimulus package represented the best chance for Congress to grant Medicaid relief. The National Governors’ Association lobbied for passage of the bill, which would have provided $5 billion to states this fiscal year. Without it, the likelihood of any Medicaid help for states is remote.

“As the stimulus package goes down, it makes achieving [Medicaid relief] much more difficult,” said Cherilyn Scism, legislative associate for health policy at the NGA. “We need to find a different legislative vehicle, because the stimulus does appear to be dead.”

North Carolina receives about 62 percent of what it pays in Medicaid assistance from the federal government. States are reimbursed based on their average per-capita income.

Easley lobbied for an increase in the Federal Medicaid Assistance Percentages, by sending a letter to Burr.

“It’s our understanding that federal Medicaid relief is still alive,” said Dan Gerlach, an economic adviser to Easley.

Legislation exists on Capitol Hill also in a stand-alone bill, sponsored by New York Rep. Peter King.

Chances of that bill gaining steam are dim, unless it gets attached to another health care reform measure. But Congress isn’t expected to act on legislation of that type until August at the earliest, well after the end of the fiscal year.

“We’re desperately working behind the scenes to find a compromise bill,” Burr said. “If we did a stimulus package, it would have to be in the next four to six weeks in order to have the impact we look for in the economy.”

Capital Quotes

“It’s short-term excitement without long-term planning that has put us in this position.”

Mike Barber, chairman of the Guilford County Board of Commissioners, discussing the state’s budget situation with the News & Record of Greensboro. Last week Gov. Mike Easley declared a budget emergency and ordered that $209 million in funds scheduled to be distributed to counties and municipalities be retained by the state. To make amends, Easley is suggesting that some revenue from the half-cent tax increase enacted last year go to local governments starting next year, as opposed to in 2004 as is currently the case. How Easley would replace the resulting revenue gap in next year’s already unbalanced state budget is unclear.

“This vote will determine whether Charlotte stagnates or progresses.”

— Charlotte Mayor Pro Tem Patrick Cannon, commenting to The Charlotte Observer on the city council’s vote on a new arena plan for the NBA’s Charlotte Hornets. The $231 million project, which was approved by the council, would build a new arena for the Hornets if they don’t move to New Orleans, as is their plan, and change ownership. Despite some high-profile local business involvement, the majority of the money for the new facility would come from public sources. The change of ownership requirement has already struck a nerve with the NBA.

Mr. Mayor, could you give us a beat so I can get my mind together? Can you bump on the desk.

— Fayetteville Councilman D. J. Haire, as quoted by the Fayetteville Observer, asking Mayor Marshall Pitts Jr. for musical inspiration during a council meeting. Haire’s good-natured ribbing at the mayor came after Pitts suggested that Fayetteville select an official song. The Fayetteville City Council voted, 8-2, to have the city manager develop a process for choosing the song.

Novak Reviews Bush
Oks handing of war, questions domestic policy

Robert Novak, conservative cohost of CNN’s “Capital Gang” and “Crossfire,” gave George W. Bush’s presidency a mixed review at a John Locke Foundation luncheon Feb. 11.

The veteran Washington journalist told an audience of about 250 people that while he generally supported the president’s prosecution of the war against terrorism, moves Bush has made on domestic policy trouble him. Novak said he has received volumes of e-mails from Bush supporters who “don’t really understand what I do” and have requested he cease his criticism of the president.

While he’s conservative, Novak said he is not a cheerleader but a journalist who “tell[s] the truth within my frame of reference.” He said Democrats expect the worst from him and get it, but when he's critical of Republicans he said he hears more flack from them.

“My criticism is the criticism of a friend,” he said.

Reviewing Bush’s term in office so far, Novak discussed the divided country the president inherited after the November 2000 election, split almost evenly between those who favor big government versus those wanting smaller government. Novak said no president in his lifetime came in with less experience, or had more trouble with his vocabulary (and was mocked for it), than Bush did at the outset. Then the terrorist attacks of Sept. 11 occurred, which Novak said defined Bush's presidency.

Bush initially listened to his advisers, who Novak said “had him flying around the country” and told him he couldn’t return to Washington. Perhaps because of his inexperience he returned to the capital within a day, disregarding recommendations from senior counsel.

“He was seen as a man who could lead,” said Novak, who called Bush’s emergence one of the great political stories of our time. He said that despite his impediments and having to work with a depleted military arsenal, “he has done a remarkable job.”

Novak singled out the loss of only two Americans in the war, and the successful use of indigenous forces in Afghanistan, as significant accomplishments.

Novak turned to Bush's domestic policy, for which he held some heavy criticism of the president. Saying the conservative agenda was “held in abeyance,” Novak compared Bush’s budget proposal to Franklin Delano Roosevelt’s wartime budget, in which too much is acceptable in the name of prosecuting the war.

“There isn’t all that much restraint,” Novak said of the excessive deficit spending proposed by the president.

Novak wondered what became of some issues that Bush campaigned on, like Social Security reform, elimination of racial quotas, school choice, and ending partial-birth abortion. He also noted Bush’s “huge aggrandizement” of the Department of Education, and his expansion of former President Bill Clinton’s volunteer AmeriCorps program — both longtime targets for criticism by conservatives.

Novak also pondered Bush’s State of the Union remarks about the “axis of evil:” Iran, Iraq, and North Korea. Concerned that Bush might try to expand presidential powers beyond what is constitutionally authorized, Novak said, “I applaud the popularity and service of our president, and I sure hope he doesn’t take it too far.”

Coming Up

The John Locke Foundation will celebrate its 12th anniversary with a dinner March 22 at the North Raleigh Hilton. William Kristol, editor of the national weekly political magazine The Weekly Standard, will be the featured speaker.

Widely recognized as one of the nation’s leading political commentators, Kristol regularly appears on Fox News Channel. Before starting The Weekly Standard in 1995, Kristol led the Project for the Republican Future, where he helped shape the strategy that produced the 1994 Republican congressional victory. Kristol served as chief of staff to Vice President Dan Quayle and to Secretary of Education William Bennett under President Ronald Reagan.

At the event, awards will be presented to Charlotte attorney and anti-tax activist Tom Ashcraft and former Raleigh Mayor Paul Coble.

The cost of the anniversary and awards banquet is $30 per person. Reception and registration will begin at 6:30 p.m. Contact Kory Swanson at (919) 828-3876 or [email protected] for more information, or to register for the event.

On the Cutting Edge

401 (k) and IRA Tax Rates

Most people believe that saving in tax-deferred retirement accounts, such as 401(k) plans and traditional IRAs, will reduce their total taxes over their lifetimes. Yet according to a new study by the National Center for Policy Analysis, the accounts might actually cause low- and middle-income families to pay more in taxes.

If a couple earns $50,000 per year at age 25 and makes maximum 401(k) contributions over their work-life, their lifetime taxes will actually go up by more than $1,077 assuming a real rate of return of 6 percent.

At an 8 percent real rate of return, lifetime taxes would increase by more than $7,000.

If the federal government raises future tax rates, which is likely given the large unfunded liabilities in Social Security and Medicare, 401(k) participants will do even worse. The family would be better off avoiding the 401(k) deposit, paying taxes on the sum and investing it in a non-tax sheltered account.

One reason 401(k) contributions increase a taxpayer’s total taxes is the Social Security benefits tax. Although nominally a tax on benefits, it’s actually a tax on other income.

“The Social Security benefit tax puts many people in a higher tax bracket after they retire than before,” coauthor Laurence J. Kotlikoff said. “So instead of paying taxes at the time of their life when they are in a lower tax bracket, 401(k) plans delay the payment until they are in a higher bracket.”

Another problem is that large accumulations in a tax-sheltered account mean large payouts during the retirement years, and this also pushes seniors into higher tax brackets. If less accumulates in the account, there will be less income and, therefore, a lower tax bracket during retirement.

Published as “Tax-Favored Savings Accounts: Who Gains? Who Loses?” NCPA Policy Report No. 249, by the National Center for Policy Analysis, January 2002.


The Special Supplemental Nutrition Program for Women, Infants and Children costs $5 billion per year and serves about 7.3 million women and children. But experts say research shows “WIC’s benefits are modest at best.”

The goal of the 30-year-old WIC program is to prevent nutritional deficiencies that can cause physical or medical problems among low-income pregnant, breastfeeding and postpartum women, and their infants and children up to age 5. It seeks to improve their diets by providing healthy foods, together with nutrition education, counseling, and referral services.

Among the problems welfare experts see in the program:

Claims that every dollar spent on WIC saves $3 in Medicaid costs relate only to the prenatal program, which involves only about 11 percent of program participants, and even there the evidence suggests the benefits are modest at best.

Among the conditions WIC is intended to ameliorate are prematurity and low birth weight among pregnant women, but in fact, from 1986 to 1998, the incidence of low birth weight increased by 12 percent.

WIC has been expanded to serve the lower middle class, when it might have been more effective to improve services for generally needier families. For example, WIC’s rigid spending rules effectively prevent local programs from providing more than about 30 minutes for nutrition education every six months and preclude enriching food packages with such items as iron supplements.

Congress developed WIC almost 30 years ago, when hunger was the major nutrition-related problem. Since then, overweight has superseded hunger as our most serious nutrition-related health problem.

Reported by the American Enterprise Institute.

Young Adult Unemployment

Labor specialists confirm that jobless rates are soaring for workers ages 24 or younger. The trend alarms economists because youth unemployment can hamper income and advancement later.

The jobless rate for people ages 20 to 24 hit 9.6 percent in December, while the unemployment rate for 16- to 19-year-olds is more than 16 percent, according to the Department of Labor. The national jobless rate is 5.8 percent.

One reason the rates are so high in this category is that employers are favoring applicants with skills and proven performance, unlike their preferences in the last recession, when the strategy was to cut people who were older and more expensive. Also, high school and college-age students were disproportionately represented in high-tech industries, a sector which has been hit hard by the downturn.

Climbing unemployment has increased competition for jobs, causing older workers with more experience to take more entry-level jobs typically held by younger workers.

More than 44 percent of the unemployed are under 30, according to the Employment Policy Foundation. But only one-third of those are heads of families. More than half are children or other relatives of the heads of households, or single people living on their own.

Reported in USA Today, 1-28-2002.



Material published here may be reprinted provided the
Locke Foundation receives prior notice and appropriate credit is given.


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